Friday, February 28, 2014

The Bill of Rights was created to protect our individual rights, and the Fourth Amendment was no exception. Our Fourth Amendment states that "the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized." The Founding Fathers were astute enough to realize that the right of property and expectation of privacy are important for a free society.

This past Tuesday, the Supreme Court did a real number on the Fourth Amendment by ruling on Fernandez v. California. Back in 2006, the Court ruled in Georgia v. Randolphthat the police have no constitutional authority to search an individual's premiseswhere one resident disagrees to a warrantless search while another consents. What the 6-3 ruling of Fernandez v. California permits is that in the event that a resident who objects to a police search is removed from the residence through a legal arrest [or merely leaves the premises], a remaining co-resident can provide the police consent to search the premises without demanding a warrant. Until this past Tuesday, the police would have needed to obtain a warrant if a resident refused a warrantless search by the police. That has since changed.

In his majority ruling, Justice Alito had stated that "even with modern technological advances, the warrant procedure imposes burdens on the officers who wish to search, the magistrate who must review the warrant application, and the party willing to give consent (III, C)." For Alito, a warrantless search is somehow still in the spirit of the Fourth Amendment, irrespective of the availability (own emphasis added) of a warrant (ibid). Really? If anything, the modern technology makes it simpler than ever to acquire a warrant. Also, a warrant is supposed to burden the police. If a warrant didn't burden the police, they can enter houses on a whim, which is what occurs in police states. If a warrantless search is in the spirit of the Fourth Amendment, then why bother having a Fourth Amendment at all?

Rather than become the norm, Georgia v. Randolph became the narrow exception to the rule of how to handle warrantless searches with regards to a non-consenting resident. In this case, only one consenting co-occupant needs to be present for a warrantless search, irrespective of the physical presence of the [other] non-consenting co-resident. The message that Fernandez v. California sends is that the police can circumvent the law either by arresting the non-consenting resident in order to conduct a warrantless search or wait until the non-compliant individual leaves the premises, after which the police can acquire the permission of a compliant co-resident. Why go through the pain of getting a warrant when you can just play the waiting game or even arrest the suspect? Although the Supreme Court has not provided the police with a carte blanche for warrantless searches, it has nevertheless eroded something that is vital for civil liberties to flourish.

The second reason has to do with the nature of carbon. Carbon dioxide stays in the atmosphere for a century, which is a long time away. It is difficult to determine the effects because modeling the various impacts of climate change is imprecise. How is one supposed to accurately estimate environmental and economic impacts a century from now and tie them directly to current carbon output? Especially from a technological standpoint, but also politically and economically, so much can occur between now and then. Technology, especially technology emitting carbon to improve our lives, is the key to providing us with the ability to adapt to our environment, which is essentially impossible to predict. Also, how do you accurately blame mass migration, civil wars, extreme weather events, or economic cycles, all of which are already difficult to predict, on carbon emissions?!

Much of determining the value of the SCC is based on the computer modeling, also known as integrated assessment models (IAMs) of climate change scenarios, a process that makes me skeptical. Even economist Robert S. Pindyck, who is not a climate change skeptic by any means, points out how useless IAMs are (see here). IAM simulates economic activity in conjunction with our attempt to control carbon, which results in the extent to which we directly cause damage. What's more is that according to the IPCC's 5th Assessment Report (p. 16), its equilibrium climate sensitivity is likely between 1.5° and 4.5°C, which is lower than what the IPCC has predicted in the past. In spite of the lower estimated climate sensitivity (which is important because lower estimations means more time to find solutions to the problem), the SCC estimates just keep increasing. Go figure!

Let's not forget that the OMB is not reporting the global effects separately from the national ones (OMB Guidelines, 6.a.3), which has bearing in the sense that the United States should not go on the futile task of trying to unilaterally stop climate change. They call it "global warming" for a reason. Even with the United States' decrease in carbon emissions, in no small part due to increased natural gas production, there is not much the United States can do if China, the world's largest carbon emitter, does not cooperate.

One also has to contend with the issues behind the discount rate. The discount rate is a reflection of how much one is willing to pay now to avoid future damages. The higher the discount rate, the less significant the future costs. The discount rate captures three important assumptions: "humans prefer to receive benefits in the present rather than the future, that future generations will be richer and a dollar [will be] worth less less to them as a result, and the opportunity cost of capital (that there are a variety of investment options for any given sum)." According to federal guidelines (Section 8), cost-benefit analyses are supposed to include a discount rate of 7 percent, which the OMB forgot to do in the aforementioned 2013 report (the OMB only included 2.5, 3, and 5 percent [Figure 1]). It makes me wonder what the SCC would look like if the 7 percent calculations were included, although I could tell you they would either be negligible or possibly even negative. Given the assumptions made with the discount rate, we should not be so ready to dismiss the 7 percent discount rate as a possibility simply because its consideration has the plausibility of diminishing the SCC.

If the SCC were merely an argument over economic theory, I would consider this a nice, little academic exercise in polemics. However, the Obama administration is using the SCC to determine the extent to which it uses its discretion to regulate carbon emissions. Not only does production become more expensive, but the government is using the SCC to provide itself a carte blanche to regulate virtually any aspect of our lives. If we overprice carbon and it turns out the risk associated with increased carbon output is manageable, then the "War on Carbon" will be for naught.

This is not an argument about the veracity of ACC. It's about the importance of proper risk management and assessment. Especially given the long timeframe and complexity of the variables in the modeling, we need to realize that we cannot prevent every low-probability, high-damage scenario, whether that is downright nuclear war, another terrorist attack, or that ACC will cause such turbulent weather patterns that it will wipe out humanity. Before coming up with solutions and scratching the itch to regulate everything that emits carbon, we should realize the complexities and limitations of IAMs and factor that into policy-making decisions before jumping into climate change policy that could do more harm than good.

Monday, February 24, 2014

I can imagine what some of you are thinking right now. "A libertarian argument for subsidized birth control? Really?! Has he been drinking from the statist Kool-Aid?" I know what it seems like at first glance, but hear me out.

A few weeks ago, I found myself in a discussion with a friend and colleague of mine regarding birth control. This discussion began as one about anti-poverty policy alternatives. My colleague suggested an inverse child tax credit, but before we knew it, we were discussing birth control or whether or not it should be subsidized by the government (As a point of reference, this blog entry will not be discussing the infamous Obamacare birth control mandate because mandates and subsidies are conceptually two separate policies). For as long as I can remember, my attitude towards subsidies has been "I've never met a subsidy that I actually liked." Look at unemployment benefits, food stamps, or student loans. These examples of subsidies are all failures that have done nothing to solve the problem, and in certain cases, even have exacerbated the problem. Throughout all my academic studies and research, I have never come across a subsidy that actually works, perhaps until now. What is it about a birth control subsidy that would cause such a reassessment?

Raising a child costs a considerable amount of money. Not to be too tautological, but poor people aren't exactly rolling in the dough. Childcare puts economic strain on poor people due to lack of resources. This is particularly true for those who have unplanned pregnancies. The Census published a report last year showing the connection between out-of-wedlock births and poverty. A Pew Research report (2010) on motherhood demographics shows that nearly half of mothers have a high school degree or less educational attainment, which is disproportionately high when considering educational attainment in this country. Even more recently, a study from Harvard University showed that the single largest factor of economic immobility is single-parent households. Childrearing can be financially strenuous enough for a two-parent household, which makes it a fortiori difficult both for single-parent households, particularly if those mothers have unplanned pregnancies or give birth out of wedlock.

For some, it might be peculiar to think of children as a negative externality, or at the very least, wanting to put a limit on the number of children that are propagated. After all, children are supposed to be a human capital investment in our future. That sounds like a positive externality to me. However, there can be too much of a good thing, and considering the resources that childrearing consumes, children are not an exception to the rule. Even when looking at the economic theory behind positive externalities, it's not as if any positive externality has infinite value. If they did, that would certainly make for some messed up policies! The socially desirable output [of children] has a quantifiable limit, and a lot of that has to do with the fact that we have scarce and limited resources. Women from disadvantaged backgrounds have great difficulty adequately managing their fertility (Salas, 2013), and when that is combined with how we should approach and prioritize positive externalities, that brings the debate on birth control into a different light.

Birth control comes with its advantages. According to the Contraceptive Choice Project, an extensive study performed by the Washington University School of Medicine, contraception leads to a drop both in unwanted pregnancies and abortions. There are also the health benefits of birth control beyond pregnancy prevention. In a longer-term sense, there is increased educational attainment, increased family savings, and stronger national economies. It's nice to list the cost and benefits, but it's even nicer to have a cost-benefit analysis, which the Brookings Institution recently performed. If the government were to enact a $235M program through Medicaid, it would produce a benefit-cost ratio of 5.6 (Thomas, 2012, p. 6), which is high rate of return for any government program.

Even if the benefits greatly exceed the costs, that does not seem like a prima facie libertarian justification to allow for this subsidy. It would be nice is there were not a stigma towards contraceptives, but it exists. For anarcho-capitalists, it would be great to live in a world without government intervention, but that pipe dream is strictly reserved for economic textbooks. Rather than have an all-or-nothing approach, we should ask ourselves which scenario would translate into less overall government.

The Brookings Institution report brought up a good point, which Thomas explained while outlining what he couldn't measure in his study: "The prevention of unintended pregnancy would probably also reduce government expenditures on the criminal justice system, on means-tested benefits for older children and adults, and on a a range of other spending programs not incorporated into this analysis. Had sufficient data been available to allow for a more complete accounting of the taxpayer savings that would be generated bt these policies, my estimates of the monetized benefits of these policies would be even larger (ibid)." Considering the cost of public schooling, Thomas should have also added government expenditures on public education into his list. Even so, let me put his thoughts into simpler terms: when looking at the grand scheme of things, a birth control subsidy would mean smaller government, which means that doing nothing would paradoxically mean more Big Government.

There are the issues of whether a birth control subsidy would further moral hazard (e.g., if contraception leads to higher incidence rates of sexual activity, which leads to more STDs) or if it would adversely contribute to fertility being below the replacement rate, although the latter does not seem to be a contributing factor to Europe's declining fertility rate. We should still continue the discussion of how to decrease poverty, address societal stigmas towards sex and birth control, as well as encourage individuals who want to have children to get married before giving birth because these are related policy issues that, if mitigated, would diminish the need for a birth control subsidy.

In summation, even if it means a slight, relatively non-intrusive form of government intervention, I would rather take that over a sizable increase of government spending any day of the week.

Saturday, February 22, 2014

This past Monday, Dan Jørgensen, who is the Danish Minister for Food, Agriculture, and Fisheries, introduced a de facto ban on the ritual slaughter of meat. His reason for the ban is because any slaughtering of meat that does not include stunning, which is tantamount to animal cruelty. This ban affects the Jewish method of animal slaughter (שחיטה; shechita), as well as the Islamic practice of halal (حلال), because neither entails stunning. What I would like to do here is threefold: 1) explain the idea behind shechita, 2) provide a brief primer of animal rights and welfare within the context of public policy and political philosophy, and 3) assess the validity of the Danish ban.

Animal Slaughter in Jewish Law
The practice of שחיטה is derived from the Torah (Numbers 11:22; Deuteronomy 12:21, 14:21). Although a Jew is not obligated to eat meat, one can nevertheless eat meat if it is slaughtered under to provisions under Jewish law. While it is permitted to eat meat in Judaism, Judaism makes it a point to show compassion in its treatment of animals, and this compassion is also illustrated in the practice of שחיטה. For one, the slaughter is performed by a trained professional known as a shochet (שוחט). Two, the knife, known as a סכין, cannot have the slightest nick or scratch on the blade so the שוחט can make as clean of a cut as possible. The cut itself is an uninterrupted cut with precision along the animal's throat to stun, exsanguinate, and kill within a single, relatively painless coup. The issue with stunning animals for slaughter here is that it injures the animal during the slaughtering process, which renders the meat not kosher under Jewish law. Judaism maintains that healthy balance between the idea we should not be needlessly cruel to animals and that animals are not on equal footing with humans. The animus towards שחיטה has more to do with the misperception that "religion is archaic and barbaric" than it does with the merits of the actual practice itself.Animal Rights and Welfare in Political Philosophy and Public Policy
The moral status of animals is up for debate, much like many other polemic issues. The status of animals in a philosophical context varies from animals being morally equivalent to humans, to being the mere property of humans, and everything in between. It should not be that difficult to dismiss the idea that animals are equal to humans. What is implicit in having rights is having responsibility. Animals are instinctive creatures, and as such, lack free will, mens rea, or even a sense of right and wrongto truly be accountable for their actions. Those are characteristics specific to the human condition. Animals are incapable of entering a social contract, which is why when a dog bites a human being or one animal eats another, animals are not prosecuted in a court of law. If animals were equal under the law, roadkill or hunting would be deemed manslaughter, swatting a fly would be murder in the first degree, putting down one's pet would be euthanasia, exterminating termites or a beehive would be genocide, and owning pets would be a violation of the Thirteenth Amendment.

If we weren't going to go down the route of complete lunacy by treating animals equal to humans, even legalizing some form of animal welfare can be tricky. On the one hand, the idea of treating animals more kindly, contra Michael Vick, has become more of a value in society because animals are also sentient beings. On the other hand, and something I will elucidate upon momentarily, how do we draw the line of "unnecessary animal suffering?" Regardless, the practice of שחיטה does not add a sense of undue suffering to the animal because if that were the case being made, the a fortiori conclusion would be that meat consumption would have to be made illegal, which is only something you see the radical animal rights activists advocating. What is Jørgensen trying to pull?
When passing the ban, Minister Jørgensen had stated that "animal rights come before religion," which I personally don't find inspiring because he's making the statement that animal rights supersede human rights. Jørgensen was also the president of an animal rights group, so it makes me ask about the extent to which this is legitimately about animal rights and welfare.

Compared to the entirety of an animal's life, the slaughtering is a small percentage of that animal's life. Is the Danish government going to the abandon factory farms that put its livestock in such squalor conditions as close confinement, restriction or prevention of normal exercise, lack of daylight or fresh air, or the related health issues? Since 25,000 piglets die per day through the Danish factory farming system (don't forget the pigs who have their tails docked), which is one of the most intense pig farming systems in the world, maybe Jørgensen shouldn't be sending the message that the slaughter at the end of the animal's life is more important that how it is treated throughout its entire life.

If the Danish government is this worried about animal welfare, why have animal slaughter be legal in the first place? Those who think sending an electrical current through an animal doesn't cause pain should try it either on their pet or a fellow human being. If animals are to be granted that much consideration, then animal slaughter of all meat should be considered, as well as the practices of hunting, zoophilia, or being the world leader in producing mink pelts. The amount of animals abused, harmed, or killed in other practices in Denmark [or anywhere else, for that matter] far exceeds the number of animals killed during שחיטה or حلال. At a minimum, Denmark should mandate vegetarianism if animal welfare were that sacrosanct.

Practically speaking, this ban will not really affect the lives of Jews or Muslims in Denmark. Some of the imams in Denmark already ruled that حلال with stunning is an acceptable leniency, and Danish Jews have been importing their kosher meat for the past decade. There is not a single kosher slaughterhouse in Denmark, so it makes me wonder why Jørgensen would make the symbolic gesture at all.

A part of me wonders whether or not this is an assault on religious practice. The Danish Constitution (Section 67) is not the most reassuring form of religious freedom, especially in comparison to the First Amendment of the U.S. Constitution. Given the overall secular attitudes of Denmark, it would not be surprising if this were a way to stick it to religion, particularly minority religions that the typical Dane would trouble understanding. This ban could also be a populist, anti-immigration response to the uptick in immigration that has taken place since 1995, and the Jewish community could have incidentally been in the crossfire. Alternatively, this could very well be simple politics. Up until earlier this month, Socialistisk Folkeparti (the Socialist People's Party) was part of the coalition government. Although the next Danish general election isn't until September 2015, it's never too early to pander to the green politics of the Socialist People's Party in the hopes that they maintain the coalition in time for the upcoming election, especially after the Copenhagen Zoo euthanized a perfectly healthy giraffe and fed it to the lions. Unless Jørgensen publicly states an alternative reason or leaves a paper trail behind explicitly explaining why he unilaterally proposed this ban, we won't know what is going on inside his head. Whatever the ultimate reasoning may be, one thing is for certain: this ban has nothing to do with animal welfare.

Friday, February 21, 2014

When performing economic or public policy analysis, it's always nice to have sound metrics. Since its inception back in 1934, the gross domestic product (GDP) has been considered the "gold standard" of determining a country's standard of living. Given the change of political economy over the past eighty years and the roles that governments have played since 1934, I was wondering if the GDP is still an outstanding metric, whether it should be accompanied by other metrics, or whether it should be scrapped all together.

First, it would help to know what the GDP actually measures. The GDP is the sum of private consumption (C), gross investment (I), government spending (G), and the trade balance (exports minus imports; X-M) within a given time period, or to put it in equation form:

GDP = C + I + G + (X-M)

Using economic output as an indicator of success certainly has its advantages. The GDP measures a nation's buying power, which takes market activity and economic growth into account. The GDP is an indicator that is objective, widely used, consistently calculated across borders, and has readily available data, which makes it easy to measure GDP. Also, there is the matter that countries that have a higher GDP is roughly correlated with having a higher standard of living.

However, the GDP has its flaws. Just to name a few:

GDP only measures quantifiable, monetary economic output. The GDP has nothing to say about the quality of said output. A country could be producing short-lived, cheap, low-quality products. Having to replace cheap goods often versus buying a high-quality item once can artificially increase the GDP. It also does not differentiate between good spending (e.g., education) and bad spending (e.g., cigarettes).

Disasters and externalities inaccurately increase the GDP. War requires soldiers and ammunition, natural disasters require relief, oil spills and pollution require clean-up, and rampant crime requires more government expenditures towards crime reduction. If these externalities did not have to be cleaned up, our scarce resources could have been applied elsewhere in a more efficient manner, which leads to my next point….

"Government is inherently good, free trade is inherently bad." What makes the public sector different from the private sector is that the public sector cannot accurately value its output. The private sector at least can use a willingness to pay [reflected in supply and demand] to determine such a value. What is the value of domestic intelligence, the worth of government's subpar operating of preschool, or the benefits of carbon reduction? If the government produces something of little or no value whatsoever, the GDP framework would count this squandering of resources as economic growth (The same works if such waste happens in the private sector and gross investment). Under this framework, even financing of debt with the central bank printing money en massefollowed by increased amounts of government spending is considered a plus in the GDP formula! A framework that says that government spending is alwaysgood is problematic in my book. Furthermore, it makes the erroneous assumption that net imports (read: free trade) are harmful.

Omission of non-market activities. Transactions that are not counted in the GDP are volunteer work, household services provided by [stay-at-home] parents, production solely for one's consumption, barter, or the underground economy.

Other measurements matter. There is more to success than economic output, and that includes happiness, the value of leisure time, literacy, quality of health care, social cohesion, child welfare, maternal mortality, quality of labor, and environmental impact.

Does not account for distribution of wealth. The GDP is a macroeconomic indicator that looks at the economic wealth of a country as a whole. It does not break down the distribution to determine poverty levels or income inequality. Although GDP per capita does a more-than-decent job of capturing the average individual's wealth, in the even that a country has an absurdly high Gini coefficient, the average wealth and well-being measured in per capita terms becomes misrepresented.

Wednesday, February 19, 2014

My guess is that this was in reaction to Obama wanting to raise minimum wage, but even if that's not the case, it was fun to read the Congressional Budget Office (CBO) published a report yesterday on the effects on minimum wage. What did the CBO have to say about minimum wage? Here are a few of my favorite points from the report:

By the end of 2016, "[raising the minimum wage to the] $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent (p. 1)." Aside from the fact that this number was close to the prediction I made last week, I find it interesting that in order to lift 900,000 people out of poverty (p. 3), it would be acceptable for some to "pay" the price of making 500,000 unemployed, which is odd for a policy that is allegedly anti-poverty.

"The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO's estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion [i.e., $5.89B] would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold (p. 2)." Why is it that a policy that is supposed to fight poverty helping out the middle class more than it is the poor?

"Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices (p. 2)."

"The net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter (p. 2)."

Even with the overall, net real income increases that the CBO estimates, "real income would decrease, on net, by $17 billion for families whose income would other have been six times the poverty threshold or more, lowering their average family income by 0.4 percent (p. 3)."

"At first, when the minimum wage rises, some firms employ fewer low-wage workers, while other firms do not; the reduced employment is concentrated in businesses and industries where higher prices result in larger reductions in demand. Over a longer time frame, however, more firms replace low-wage workers with inputs that are relatively less expensive, such as more productive higher-wage workers. Thus, the percent reduction in employment of low-wage workers is generally greater in the long term than the short term (p. 7)." Or in layman's terms, "way to stick it to poor people by making it harder to find work!"

"In the long term, [the] reduction in the workforce lowers the nation's output and income a little (p. 8)."

"About 16.5 million workers who will earn less than $10.10 per hour under current law would receive higher wages (p. 11)." I bring this up because the White House estimated that 19 million would direct benefit from the minimum wage hike, which just makes the White House look bad for overestimating the benefits to make a point.

"The Affordable Care Act's requirement that many employers provide health insurance (or pay a penalty if they do not) will impose an additional cost on employers for some low-wage workers who do not currently have employment-based health insurance. CBO expects that the cost will ultimately be broke by workers through lower wages; but before that adjustment has fully taken effect, the cost further boosts the likelihood that employers' savings from reducing the size of their workforces would exceed their adjustment costs (p. 23)."

While minimum wage helps some people escape poverty, which is to be expected, it is not at all surprising that minimum wage also renders 500,000 citizens unemployed, thereby making it more difficult for others to escape their economic plight. There are arguably better policies to deal with low wages, such as the Earned Income Tax Credit or a wage subsidy. 500,000 unemployed might not sound too bad, but combine that with the Obamacare-induced job loss of nearly 2.5 million full-time equivalent, and you're talking about a whole lot of job loss on Obama's watch. In spite ofthe CBO's methodologythat overstates benefits and understates costs, it's refreshing to confirm what I have been saying about minimum wage all along (see here, here, here, and here), which is that minimum wage creates more joblessness, it's far from being a silver bullet for eradicating poverty, and employers will find ways to pass on the costs to compensate for the wage increases.

For one, it has relatively low transaction costs. The joy of the P2P system is that the lack of an intermediate. Paypal and credit card companies charge larger transaction fees to validate electronic transactions. The lower costs can be offset either by its volatility or by the period of time it takes for the transaction to complete (FRB, p. 3). Those who want more privacy, particularly those looking to avoid identity theft, would derive benefit from the Bitcoin system. Bitcoin currency is also exceptionally portable, divisible, and scarce. The value of Bitcoin market has peaked $20B to date (CRS, p. 3), which exceeds that of some small, developing countries. Bitcoin can also provide better access to financial instruments, which can alleviate poverty in developing countries (Mercatus, p. 14).

Aside from the previously mentioned transaction times and volatility (CRS, p. 7), the latter of which can be mitigated by the possibility that the Bitcoin's fluctuations are merely a stress-test, there are some downsides to Bitcoin. First, the currency's anonymity, or more specifically, pseudonymity, encourages tax evasion and money laundering (Mercatus, p. 23). Maintaining the Bitcoin's advantages while diminishing criminal use will prove to be a challenge. The Bitcoin "mining" process has its environmental costs. Also, it has a long-term deflationary bias (CRS, p. 7), a lot of which has to do with the system being arbitrarily set up a ceiling to only produce 21 million bitcoins (conversely, the idea here is to make sure that [hyper]inflation is avoided, not to mention incentivizing long-term investment), which will theoretically never hit the ceiling due to Bitcoin's divisibility. Additionally, the Bitcoin code and network is opaque and vulnerable, much like we have seen with Mt. Gox, which makes me question its reliable store of value and overall security (CRS, p. 8). Its relative intangibility renders bitcoins prone to loss. Bitcoin is still so new that it is currently not legal tender in any country, nor is it recognized as an official currency by any regulatory authority.

A currency that can compete with the monopoly of central banks has its appeal. It would be nice to see a competitive market in the currency market. The creation of Bitcoin illustrates the demand and desire for people to have the economic freedom to liberally transact. However, Bitcoin is still too new to determine its longevity because it is a disruptive innovation. It will take a few years after the Bitcoin system can work out the kinks, after which it will be much easier to discern whether bitcoins will become a currency in the global finance system or will be relegated to the dustbin of economic history.

Friday, February 14, 2014

A couple of days ago, Moody's upgraded Israel banking system outlook from 'negative' to 'stable.' Considering that Israel's outlook has been negative for the past couple of years, it is a nice change of pace to know that the Israel is improving enough to gain Moody's optimism. Why the change of heart?

The change in the banking system is reflective of Israel's overall economic improvement. The International Monetary Fund's (IMF) Article IV Consultation on Israel, which incidentally came out on the same day as Moody's outlook report, provides some insight into the Israeli economy. Here were some of the positive aspects of the Israeli economy I was able to glean from the report:

Israel's foreign reserves are the equivalent of 22 percent of its GDP

Medium-term GDP growth is projected to be 3.4 percent, which is higher than other developed countries

Investment and savings have been on the rise

The credit default swap (CDS) spreads have remained stable

Unemployment has been decreasing and is nearly at 6 percent

Israel's strong macroeconomic fundamentals and consistent flow of FDI keep it relatively immune from the volatility in global economic markets

The Israeli government intends to reduce the deficit to 3 percent in the 2014 fiscal year, and intends to continue with further deficit reduction in the future

The debt-to-GDP ratio has been on the decline since the Second Intifada

There are some factors that I still find worrisome, including sharply rising house prices and the concentration of loans in the real estate market, raising the value-added tax from 17 percent to 18 percent, continued tax exemptions for those in [advanced] religious studies, the sudden appreciation of the shekel weakening performance in the trade sector, regulations that make securing property rights more difficult, a higher-than-OECD-average poverty rate, the fact that debt-to-GDP ratio is still at 68 percent, lack of integration of Haredi and Arab Israeli citizens, decreased portfolio inflows, and the reemergence of regional geopolitical tensions. Looking at Annex II in the IMF report, my educated guess is that while Israel's credit ratings will remain stable, it will take at least two to four years for the Israeli economy to work out some of its issues before credit rating agencies even begin to consider upgrading Israel's sovereign credit rating.

Thursday, February 13, 2014

During this year's State of the Union Address, Obama once again pushed for an increase in the federal minimum wage increase. Yesterday, the White House published The Economic Case for Minimum Wage on its blog. This might not be the $15 minimum wage that fast-food workers for, or the $20 minimum wage the Occupy Wall Street protesters wanted, but the $10.10 minimum wage Obama is advocating for still has its unintended consequences. What makes the White House analysis on minimum wage problematic?

The economic analysts over at the White House start out by pointing out that in inflation-adjusted dollars, the minimum wage is lower than what it was back in the 1970s (see chart below), although using the Consumer Price Index as a basis for inflation adjustment comes with its biases.

The article also brings up the fact that compared to other developed nations, the minimum wage in America is low.

None of this answers whether there should be a minimum wage or even if the current minimum wage is too low or too high. To help answer those points, the White House makes some arguments in both its blog article and its fact sheet, all of which I find to be either erroneous or misleading:

The minimum wage increase would benefit 28 million individuals. The Council of Economic Advisers (CEA) over at the White House would like to think that about 19 million individuals would directly benefit from a minimum wage increase to $10.10, and that an additional 8 million would indirectly benefit from the altered wage structure. Although they don't give details as to how they arrived at these numbers or adequately elaborate on how the minimum wage hike would benefit the recipients, they still hint at using Census data to arrive at their conclusion. If I went through sector-by-sector data from the Bureau of Labor Statistics to aggregate all the data, I might reach the 19 million that the CEA is referencing. For argument's sake, let's aggregate the labor market into a 19 million employee labor market. Also, let's conservatively say that the minimum wage increase would only decrease this market by two percent because in spite of what they think over at the CEA, the minimum wage is still a government-mandated price floor on unskilled and low-skilled labor that has adverse effects (there was a time when even liberal economist/pundit Paul Krugman believed that). With that minimum wage increase, it would still increase unemployment by nearly 400,000 people, and that doesn't even get into deadweight welfare loss! I'll continue in the subsequent points, but it's hard to criticize the CEA when they're being so vague on the concept of benefit or who exactly it benefits.

Raising the minimum wage will make sure no family of four with a full-time worker has to raise their children in poverty. I have to wonder what individuals are doing procreating if they can't afford to raise the child to begin with. That notwithstanding, minimum wages laws create net unemployment (Neumark and Wascher, 2008), so while some might receive a marginally better wage, there will be others who lose their job and find it that much harder to find work experience that will advance their career, which makes the White House's claim unbelievable. Since the cost of minimum wage is concentrated on the employer, this also has to take into consideration the other clever ways that employers will compensate for the wage increase, including cutting hours, cutting benefits, or increasing the price of the good or service, the latter of which can increase inflationary pressures. Minimum wage laws do nothing to reduce poverty (Sabia and Burkhauser, 2010; Sabia and Nielsen, 2012), and as a matter of fact, they very well might increase poverty (Neumark and Wascher, 2005). To claim that a minimum wage hike is the silver bullet of poverty issues is a stretch, to say the least.

The minimum wage increase will help increase worker productivity. The premise behind this argument is that an increased wage would incentivize employees to work harder. Normally, this argument makes sense to me because people are much more likely to respond to incentives. However, I would postulate that the incentive effect carries much more weight with skilled labor than it does with low-skilled labor. Why? Because being unskilled or low-skilled labor, one has not developed the knowledge, experience, or skills to increase productivity at a rate that would noticeably exceed the rate of the wage increase, which looks to be the case (Feldstein, 2008). There is also the matter of labor-labor substitution. Minimum wage is not the only imposition on an employer. There is also the matter of health care, regulations, and other benefits, all of which impose extra costs on hiring labor. If push comes to shove, the employer is going to most probably retain the more productive employee while cutting hours or employment of the less productive employee. Once again, if the goal is to help those in need, a minimum wage hike has a funny way of showing it.

The minimum wage raise will mean a reduced turnover rate and reduced absenteeism. Aside from productivity, the other supposed benefits are that a) one will be less likely to leave their current place of employment because the wage is more "livable," and b) the increased wage will incentivize individuals to show up to work more often. As for the turnover rate, there are companies, such as Costco, Trader Joe's, and Amazon, who have realized the benefit of providing employees with a high enough wage to incentivize their employees to stay. If the idea is that blatantly obvious, then there is no need for a government mandate to enforce it because it would happen naturally. However, some employers might view the turnover rate as only one cost amongst many to consider, and quite frankly, that should be the employer's call to make. Plus, the lower turnover rate might have something to do with the fact that employers are disincentivized to hire more workers precisely because of the minimum wage hike (Neumark and Wascher, 2008; Meer and West, 2013). With regards to absenteeism, a higher wage might not do the trick (Bucila and Simon, 2009).

Across the country, America's saying it's time to raise the minimum wage. Honestly, who cares? Most economists think it's a bad idea, and that would have something to do with the fact that one who thinks it is a good idea is looking at the benefits without bothering to wonder how it affects labor markets (Wilson, 2012). After all, it shouldn't be all that hard to believe that minimum wage is going to cost somebody at some point. Rather than helping low-skilled workers, all the minimum wage does is make it more difficult for those with the least amount of skills more difficult to acquire the skills to move up in the world. If we want to help the poor, instead of advancing a policy that keeps low-skilled labor poor, let's discuss policies that can actually help the poor.

A quota is a government-imposed limitation on the amount of goods and services. In the context of immigration, the quota limits the number of non-citizens that can become citizens. The economic effects of an immigration quota on the labor market are illustrated below, which is a net deadweight loss (C+D) in economic welfare.

Considering the European Union's rigidities in the labor market, being overly punitive with the Swiss would be calling the kettle black. Regardless, Switzerland has just shot itself in the foot in terms of liberalized labor markets. I know that Switzerland has historically been a neutral power to prevent foreign powers from invading, but it's disappointing to see a country with a good amount of economic freedom pass a referendum that prevents economic prosperity will ultimately be a disservice to the Swiss people.

Tuesday, February 11, 2014

Kiddush levanah (קדוש לבנה), or the sanctification of the moon, is one of the more peculiar practices in Judaism. Between the third and fourteenth days after the appearance of the new moon (מולד) [on Rosh Chodesh], one goes outside with a minyan and recites a series of prayers to bless the new moon (Shulchan Aruch, Orach Chayim, 426:2). At first glance, קדוש לבנה seems like moon-worship, and for many moons, I felt that way because not only did the practice gave me that vibe (might have something to do with putting your feet together and lifting them three times), but also because moon-worship was also common amongst pagan cultures. However, I recently had a change of mind. Why?

For one, how is it any different when Jews say a bracha over anything else? Jews say brachot over food, smelling fragrances, lighting Shabbat candles, when we hear thunder, and many other instances. It does not mean we are worshiping the items, but sanctifying them in a moment of holiness. This would explain why one only glances at the moon briefly before saying the bracha rather than staring at it the entire time and fixating upon it. The prefatory Psalm 148 reaffirms this notion.

We become closer to G-d by appreciating His creations, which is why anyone who blesses the new moon is as if he has greeted the Divine Presence (Babylonian Talmud, Sanhedrin 42a). After blessing the new moon, one uses the moon's light to recognize one's friends and co-religionists and to wish them Shalom Aleichem. Shalom Aleichem reminds us that because humans are created in His Image, we also greet our fellow man and wish him well.

Symbolism of the moon also plays a pivotal role in bringing meaning to the practice. The monthly reappearance of the moon engenders a sense of renewal. Renewal helps us gain a sense of strength and hope, which is supposed to bring us joy. There is also symbolism in the moonlight. Much like the moon waxes and wanes, we also have high points and low points in life. Moonlight illuminates in darkness. We can make it through in dark times because of the moonlight, which is why we should be appreciative of the moon. Unlike other brachot, which do not highly recommend the use of a minyan, קדוש לבנה does. The fact that it is optimal to recite the bracha with a quorum of ten shows us that we don't have to face the darkness of life alone.

Additionally, R. Menahem HaMeiri points out that wonders of nature are a reflection of G-d's presence, which requires us to praise His greatness. During קדוש לבנה, we recognize G-d's might and control over nature (Beiur Halacha 426:2). We further recognize His strength by reciting Aleinu afterwards.

קדוש לבנה is much more than just howling at the moon. קדוש לבנה provides us with a monthly encounter with the Divine that helps us get closer to G-d and appreciate His creations.

Ukraine scored #155 on Heritage Foundation's Economic Freedom Index, and #126 on Fraser Institute's Economic Freedom Index, neither of which are flattering scores. Freedom House ranks Ukraine as only Partly Free. Even on the Corruption Perceptions Index, Ukraine scored 144 out of 177. What this scoring suggests to me is that Ukraine, much like its other Eastern European neighbors did in the past, are yearning for a free and democratic society. After the Cold War, we saw how countries such as Poland, Lithuania, Estonia, and Hungary become more free and better off in comparison to being part of the Soviet bloc. Bringing freedom and a better way of life to the second largest country in Europe [in terms of area] would certainly be the moral argument for why the international community should be interested in Ukraine.

There is also economics to consider, which are well beyond its robust agricultural sector. Ukraine's GDP reached $178B last year. In spite of having less than a $4K per capita GDP, Ukraine is geostrategically located as a key energy transit route, not to mention its natural gas reserves that are appealing to Russia. Putin's interest in Ukraine goes beyond the money he can make off of natural gas. He is looking to build a Eurasian in attempts to increase its sphere of influence and revive the glory that Mother Russia once had. Considering how repressive Russia had been of Ukrainian nationalism it would seem odd for Ukraine to acquiesce. If Russia succeeds in integrating Ukraine, a country with a large, military industrial complex, into the Russian empire, it could very well create a balance of politics scenario that we have not seen since the Cold War. Whether or not Russia acquires Ukraine, there is also the worry that Ukraine could fall into a civil war. I don't think the situation is that dire, but it is within the realm of possibility.

Although I don't think Russia will fully recover its previous glory, they could still gain enough international clout to be a nuisance. So what can be done? Aside from some diplomatic pressure [for further trade integration], I am not sure that there is not much the West can do for Ukraine in this situation. Since the oligarchs of Ukraine have assets in the West, economic sanctions might put pressure on Yanukovych, but economic sanctions are not the most successful form of retaliation (e.g., Cuba, Iran). I would opine that since the impetus of the protests is due to domestic policy, the forces that will have the largest effects on the decision-making process of the Yanukovych regime will be domestic in nature. Even so, whatever pressures are put on the Ukrainian government, domestic or international, I hope they are enough to help integrate Ukraine further into the European Union.

Friday, February 7, 2014

Back on Tuesday, Bill Nye the Science Guy duked it out with creationist Ken Ham over the debate of "Evolution vs. Creationism." I provided the footage of the debate down below.

Since my academic background is primarily in public policy, I'm going to stay away from the scientific jargon as much as possible. What I would like to do is discern the issue from a public policy standpoint and determine whether theories such as creationism and Intelligent Design (ID) should be taught in schools.

Before answering the question, I should first specify the sort of schooling towards which this questioning is targeted. This is not geared towards homeschooling because in spite of accreditation requirements, parents who homeschool their children have more latitude in what they teach their children (As a side note, I am interested by the fact that even with the disproportionate amount of home-schooled children being Evangelical Christians, there is a growth of secular, home-schooled children). Similar arguments can be made for private schools, and to a lesser extent, charter schools. This primarily leaves us with the question of whether these theories should be taught in public schools.

This leads us to the next question of "what is scientific theory?" When used in the world of natural sciences, the word "theory" does not mean "a set of ideas that are presented to explain something, but may or may not be true." When we say "scientific theory," we mean to say "a well-substantiated explanation of natural phenomenon that can be confirmed through observation and experimentation via the scientific method." I remember when I was in college, I took a course of the physics of light, and there was a lot of debate as to whether light was a wave, particle, or a combination of both. Even with the debate, there were still a set of high standards that was applied to the scientific inquiry.

Now that we have a better grasp of "scientific theory," let's move over to the differences between Creationism and Intelligent Design. Just for the record, these are not synonyms. According to Webster's dictionary, Creationism is "the belief that G-d created all things out of nothing as described in the Bible, and therefore the theory of evolution is incorrect." Creationism is a sectarian ideology based on biblical literalism, a literalism that I find to be irksome. Creationism is not taught with secular intent. Creationism should be left for Sunday schools, not for public schools. Doing otherwise would be a violation of the First Amendment.

Intelligent design, on the other hand, simply states that an intelligent, powerful being created the universe in a directed process. Note that the theory of intelligent design does not postulate who the designer is. It could be G-d, الله, or one of the deities from polytheistic religions. Heck, it can even be the Flying Spaghetti Monster, and it would still be a form of intelligent design! The notion that the universe was created by design, rather than random mutations, is not an argument that inherently religious in nature. What's more is that there actually is a cogent case to be made for "design in nature," whether it comes in the form of the fine-tuned universe argument, cosmological argument, or the specified complexity argument. To secularly argue that there is intelligent design has a lot more validity than arguing that the world was literally created in six days and that the world is literally about six millennia old.

Before I go into the policy analysis, just a few words on how I personally feel on the matter. Unlike most of America, I do not find a dichotomy between science and religion. Science explains the "how," and religion explains the "why." Let's say that natural selection and random mutations are undeniably the mode through which we came into being, which based on discerning what I can from the scientific evidence, it's the most probable scientificexplanation. I don't care because it does not violate my understanding of Torah in the slightest, and it does not shake my belief in monotheism because evolutionary theory and Judaism are not mutually exclusive. There's no contradiction in me being a theistic evolutionist.

In an ideal education system, I would like for school to be an institution in which students can openly discuss and debate varying points of view in a respectful, civil manner. This is why I am certainly not going to advocate for removing evolution from the classroom, but I'm also not going to say that evolutionary theory is as "open and shut" as one would like to think because it's not. With regards to this particular topic, the debate is framed in terms of "science versus religion," which is problematic. Creationists like to view their opponents as g-dless, condescending heathens, and evolutionists like to view their opponents as Bible-thumping troglodytes. Until people frame the debate in terms of "Was nature created by design or randomly," we're going to be stuck in this uncouth stalemate that perpetuates the idea that there is nothing in between atheistic evolutionist and creationist that would actually create a spectrum of viewpoints on the issue.

One of the simpler solutions, which evidently has a libertarian twist, is to get the government less and less involved in the education sector. A competitive market in education might not have answered the question of "Was nature created by design or randomly," but it would have mitigated the political tension by now. At the very least, we can think about policies (e.g., tax credits, school vouchers) that could allow for lower-income families to have better access to the education marketplace. Although there is some potential for allowing additional privatization of education, it would be relatively more prudent to figure out what to do with the public school's current K-12 curriculum.

Even if I am a proponent for more privatized education, we should still aim for a higher standard of intellectual discourse in our public schools as long as the public school system still exists. What could be done is seeking out some schools willing to pilot a science curriculum that can teach biology, as well as present cases both for evolutionary theory and intelligent design in a relatively fair, unbiased manner with supporting evidence for each side. If it's a success, then other public schools should take a cue from its success and implement it themselves. With that, we can theoretically preserve the First Amendment without having to quash intellectual debate (more on that below). It would be great to see ID taught in a secular fashion, as well as a reasonably objective one. However, I think this would be asking for too much with a country that is so divided on the issue. Not only that, an issue I find with the theory of intelligent design is that it does not meet the standard of falsifiability, which could arguably put ID out of the realm of the scientific method because even if there were unquestionably a designer, who is the designer responsible for the universe's creation? The interplay between evolution and how it relates to religious beliefs can be debated in a social studies or politics classroom. This alternative would allow for the discussion to be had, but to "leave science in the science classroom," which would a compromise from my view, but something tells me this would not be an acceptable policy alternative for creationists.

I am thinking that in an American context, tweaking the curriculum without altering it greatly would work best because my main concern is that ID would be used as a gateway to advance the agenda of creationism (see Epperson v. Arkansas). With that in mind, if only evolutionary theory is to be taught in the science classroom, it should at least be taught with a presentation of its strengths and weaknesses, as opposed to being unquestionable dogma, so that students can understand evolutionary theory from all angles and allow for enough intellectual wiggle room in the event that evolutionary theory is incorrect. Although part of an education is teaching facts, the other part of an education is to enable students to think analytically and be able to problem-solve, which this latter policy alternative would permit. This curriculum stipulation would allow for students to think openly and critically while not having religion shoved down their throats or freedom of inquiry stifled. Given the political climate, this would be the best policy alternative to the status quo.

The origin of the exemption of a woman from donning תפילין is the Mishnah (Berachot 3:3). The basis for this exemption is the notion that donning תפילין is a מצוה עשה שהזמן גרמא (time-bound, positive mitzvah), from which women are exempt. Interestingly enough, we see enough exceptions to this rule. Targum Yonatan ben Uziel, an ancient Midrashic, Aramaic translation of the Torah, viewed donning תפילין as a form of cross-dressing. Some agreed with this theory, but most halachic decisors rejected this notion because תפילין is not considered clothing. Another objection is due to the concern of having a pure body, or a גוף נקי (Piskei Riaz RH 4:3). With respects to גוף נקי, Rambam ruled (Hilchot Tzitzit 3:14) that the impure, like those who are ritualistically pure, are required to don תפילין. Also, words of Torah were not susceptible to טמאה (Berachot 22a), which means that נדה would not be an issue. Within the context of תפילין, the Talmud (Shabbat 49a) defines גוף נקי as flatulence, which is not limited to women. It can be easily argued that גוף נקי is not a sound basis for prohibiting women from donning תפילין.

Although one is exempt, this does not automatically mean that a woman is prohibited, either. The Talmud (Eruvin 96a) states that "Michal, the daughter of King Saul, used to don תפילין and no one protested." Even with this example, normative practice has been that women are not to don תפילין (Rema, Shulchan Aruch, Orach Chayim, 38:3).

In spite of the Rema's ruling, there is plenty of precedent allowing for women to don תפילין. Rambam (Hilchot Tzitzit 3:9) ruled that women can don תפילין, but did not recite the bracha because the phrase "אשר קדשנו במצותיו" would not apply [to those who were not commanded to do a mitzvah]. Sefer HaChinuch (Mitzvah #421) rules under a similar vein, by saying that a woman is not obligated to don תפילין because it's a time-bound, positive mitzvah, but if she wants to, there is no objection. The Tosafot agrees with the permissibility, but disagrees with the "אשר קדשנו במצותיו" part (Tosafot, Ran RH 33a). In addition to Rabbeinu Tam and Rabbi Zerahia HaLevi, Rabbi Moshe ben Yaakov of Coucy also agreed with allow for donning תפילין to be permissible and optional for women (Hagahot Maimoniyot Tziztit 3:9).

If a woman is donning תפילין because she wants to act like a man or "stick it to the Man," then the intention is not pure, and I would have a problem with that. Conversely, I have never seen anyone question a man's intentions of donning תפילין that were solely based on his gender, which I find all the more odd because it is my understanding that traditional Judaism claims [at least in theory] that women to be on a higher spiritual plane than men, hence why it's one of the reasons why they are not obligated to perform the mitzvah of donning תפילין. Even so, the Rashba stated that a female who desires to don תפילין to fulfill a g-dly commandant, a woman can use Michal bat Saul as an example to justify the donning. If it is ruled permissible by prominent rabbis, there is no harm in a woman performing the mitzvah, especially when it is more laudable for someone to do a mitzvah voluntarily than one who is commanded to do so (Bava Kama 38a, 87a).

Views on women have changed drastically enough over time, which has the ability to alter halacha, or at the very least, our perceptions thereof. The Jerusalem Talmud (Berachot 2:3) forbids donning תפילין because it is a form of studying Torah, from which women traditionally had been banned. If this is true, then the prohibition should have been lifted in 1917 when the Bais Yaakov movement was born and subsequently allowed women to study Torah. Aside from the Bais Yaakov movement, women were permitted to study Talmud in the latter half of the twentieth century. If the reason for not allowing women to don תפילין is because of a link between Talmud Torah and תפילין, then the link is severable.

When you view the issue through the lens of sociology and religious politics, as opposed to the halacha itself, the contention is threefold: 1) too much change is taking place too quickly, which violates the preservationist mentality of the modern-day Orthodox establishment that fears the slippery slope over the minutest change, 2) women are being shown enough inclusion where it irks a sizable amount of influential individuals, especially those who would rather not see women empowered and 3) since many consider donning תפילין to be "a man's mitzvah," this will be seen as a further blurring of gender roles, which is problematic for the Orthodox because Orthodoxy has very rigid gender roles.

Religious politics set aside, the halacha is pretty clear on the issue. Although it was not a practice of the vast majority of Jewish women to don תפילין and women are not technically obligated to don תפילין, there is legal precedent for permitting women if they choose to do so. If a woman finds that donning תפילין brings her closer to G-d and makes her a better Jew, we should encourage her to perform more mitzvahs, not less. We should encourage her to find spiritual meaning in her Jewish practice.

The reason why women and תפילין has been so contentious is because those in the Orthodox world are reaching a crossroads, a crossroads in which the leaders of Orthodoxy have to decide how they will view gender roles. Some Orthodox Jews want to maintain rigid, stringent gender roles in which a woman's role is to procreate, tend to the needs of the children, and take care of the house. Other Orthodox Jews do not view the topic as bifurcated as the ultra-Orthodox do. The issue of women donning תפילין is a case study of said divisiveness (As a brief side note, the issue of "Judaism and homosexuality" touches upon the gender bifurcation as much as "Judaism and women," which is why they are two exceptionally hot-button issues in the Orthodox world). As schismatic as the topic of gender might be, the extent of disagreement will shape the direction in which "mainstream Orthodoxy" heads. Will Orthodoxy as a whole continue to view women as mere baby-makers, or will Orthodoxy create a venue in which women can also fulfill their spiritual need to connect to G-d?

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Effective June 18, 2011, all comments will be subject to review prior to being approved. I have two simple rules:

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